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Big Tech swoons as Q1s lurk, Nvidia decimated

A look at the day ahead in U.S. and global markets from Mike Dolan

The so-called ‘Magnificent 7’ of U.S. megacap tech stocks has retreated sharply as first-quarter earnings updates kick off this week, with AI-chip star Nvidia swooning 10% on Friday after a nervy week for the sector.

World markets stabilised more broadly on Monday as another tense weekend in the Middle East passed without another direct exchange of missiles between the Israel and Iran – even though a cooling of situation had been well flagged already on Friday.

Still, the post-weekend unwind of ‘safety trades’ has seen U.S. crude prices fall back to their lowest level this month and gold prices retreated 1%.

But with four of the Magnificent 7 due to report corporate updates this week – Tesla, Meta, Microsoft and Alphabet – the alarming recoil in tech behemoths is now top of mind.

The 10% drop of artificial intelligence bellwether Nvidia on Friday is perhaps the most eye-catching move of a pretty dour week for sector. Even though shares in the chip giant are still up more than 50% for the year to date, they have now dropped 22% from last month’s peaks to their lowest since February.

It’s not clear what triggered the rout, although some analysts pointed to a 23% drop in a smaller related stock Super Micro Computer over a lack of guidance on its upcoming earnings report as a factor.

But it had been a lousy week for tech and chip stocks before that. Although Nasdaq futures are back up about 0.5% ahead of Monday’s bell, the index recorded its worst week last week since 2022 with a drop of more than 5%.

A sharp recoil in Taiwan’s TSMC after its earnings update earlier in the week started the ball rolling and then a near 10% dive in Netflix on Friday was another blow after the video streaming company’s second-quarter revenue view fell short of analysts’ expectations.

The once-dominant NYFANG index lost a whopping 8.3% last week. UBS analysts on Monday downgraded what they dub the ‘Big 6 Tech+’ stocks – basically the Magnificent 7 minus Tesla – to neutral from overweight.

And elsewhere in the Magnificent 7, 2024 losses in Apple are now running at more than 14% – while Tesla’s bruising slide of more than 40% this year shows no sign of abating.

Tesla’s woes are legion – from a sharp fade in electric vehicle demand worldwide to a full-blown price war with Chinese competitors, corporate governance issues with boss Elon Musk’s payout and numerous product glitches to boot.

But the ‘higher-for-longer’ view of Federal Reserve interest rates clearly doesn’t help stretched valuations in the sector – where the earnings season so far shows there’s an extremely high bar to wow the market gallery at this stage.

Elsewhere in the macro world, U.S. Treasuries and the dollar continue to chomp at the bit on the unfolding stubborn Fed view, strong incoming economic numbers and the contrasting picture in Europe that means interest rates there look set to fall first.

Two-year U.S. Treasury yields probed…

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